Columbia
Casualty Company ("Columbia"), the plaintiff in
this declaratory judgment action related to insurance
coverage, has filed an objection to the Report and
Recommendation (the "R&R") issued by Magistrate
Judge Almond (Dkt. No. 22), in which he recommends that this
Court grant, in part, and deny, in part, Columbia's
motion to dismiss (Dkt. No. 16) four counterclaims (Dkt. No.
14) brought against it by defendant Ironshore Specialty
Insurance Company ("Ironshore").

I.
Factual Background and Procedural Posture

The
relevant facts leading to Columbia's declaratory judgment
action and Ironshore's corresponding counterclaims are
set forth in detail in the R&R. Pursuant to the standard of
review for motions to dismiss under Rule 12(b)(6) of the
Federal Rules of Procedure, the facts are based on the
assertions made in Ironshore's counterclaims.

In June
2012, a medical malpractice action was filed against Rhode
Island Hospital ("RIH") by Mr. and Mrs. Beauchamp
after Mr. Beauchamp suffered a severe and permanent brain
injury (the "Beauchamp Action"). At that time, RIH,
as a member of the Lifespan network of non-profit hospitals,
was the named insured under three insurance policies totaling
$32 million in coverage. The first $6 million was
self-insured by Lifespan; Columbia provided the first excess
layer of up to $15 million; and Ironshore provided a second
excess layer of up to $11 million. Demand in the Beauchamp
Action was for the full policy limits of $32 million.

There
were some unsuccessful attempts at settling the case and, at
some point, Columbia directed defense counsel to concede
liability and causation, leaving only a determination of
damages for trial. Although RIH's defense counsel advised
that the case could be settled for approximately $15 million,
Columbia refused to authorize more than $500, 000 of its $15
million limit. After the damage estimate (including
prejudgment interest) was raised to between $19.1 million and
$27.9 million, Columbia declined to offer more than $1.25
million.

According
to Ironshore's counterclaims, it repeatedly demanded in
writing that Columbia satisfy its duty of good faith by
settling the Beauchamp Action within its policy limits, but
Columbia refused and the case proceeded to trial. On the
second day of trial, Columbia offered to settle the case for
a total of $15 million (including the self-insured layer and
approximately $9.5 million of the Columbia policy, which
would have resulted in a potential $5.5 million savings to
Columbia). Columbia also requested that Ironshore "drop
down" to make a payment towards settlement that would
otherwise be part of Columbia's policy coverage.
Ironshore further alleges that, rather than seeking to
negotiate a full settlement with the Beauchamps that would
avoid a jury verdict against RIH, Columbia pursued a
"high-low" agreement with the plaintiffs that
guaranteed a minimum recovery of $15 million and a maximum
recovery of $31.5 million (potentially resulting in a $6
million savings to Columbia). According to Ironshore, it
continued its own efforts to pursue a $25 million settlement
with the Beauchamps, but Columbia refused to contribute its
$15 million policy limit, notwithstanding Ironshore's
expressed concerns that a higher jury verdict would create
bad publicity for RIH and would unnecessarily exhaust
Ironshore's entire liability limits for that account
year.

Eventually,
the case proceeded to a verdict and the jury awarded the
Beauchamps $25.59 million plus prejudgment interest,
exceeding the $31.5 million maximum under the
"high-low" agreement. At that time, Lifespan's
$6 million self-insured coverage had been eroded by defense
costs, and payment of the verdict exhausted Ironshore's
second excess policy for the account year. Columbia was
liable for $15, 022, 423 and Ironshore was liable for $11,
011, 044 of the $31.5 million due to the Beauchamps.

According
to Columbia's complaint, Columbia commenced this
declaratory judgment action after Ironshore demanded
reimbursement of the $11 million Ironshore had paid toward
the judgment, on the basis of breach of fiduciary duty.
Specifically, Columbia sought a declaration that it had no
obligation to pay Ironshore's share of the
"high-low" settlement. Ironshore responded with
counterclaims against Columbia, asserting (Count I) common
law bad faith, (Count II) bad faith under R.I. Gen. Laws
Â§9-1-33, (Count III) breach of fiduciary obligation, and
(Count IV) breach of duty of good faith and fair dealing owed
to Ironshore.

In the
R&R, Magistrate Judge Almond recommended that Columbia's
motion to dismiss Ironshore's counterclaims be granted as
to Counts III and IV and that those claims be dismissed;
neither party has raised an objection to that recommendation.
With respect to Counts I and II, the R&R recommended that
this Court deny Columbia's motion, to which
recommendation Columbia has raised an objection (Dkt. No.
25). Specifically, the Magistrate Judge rejected
Columbia's contentions that (1) the "high-low"
settlement barred all bad faith claims; (2) Ironshore's
statutory bad-faith claim supplanted its common law bad-faith
claim, and (3) Ironshore lacked standing to bring a statutory
bad faith claim because it was not Columbia's
"insured." On its part, Ironshore filed a response
to Columbia's objection (Dkt. No. 27), to which Columbia
filed a further reply (Dkt. No. 29).

II.
Standard of Review

In
considering objections to a Magistrate Judge's
determination of a dispositive pretrial motion, the Court
must "make a de novo determination of those
portions of the report or specified proposed findings or
recommendations to which objection is made." 28 U.S.C. Â§
636(b)(1). The Court "may accept, reject, or modify, in
whole or in part, the findings or recommendations made by the
magistrate judge." Id . Because a grant of
Columbia's Rule 12(b)(6) motion would extinguish
Ironshore's counterclaims, it qualifies as a dispositive
motion.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The
dismissal of a complaint for failure to state a claim is
governed by Rule 12(b)(6) of the Federal Rules of Civil
Procedure. Courts apply the same standard to motions to
dismiss a counterclaim pursuant to Fed.R.Civ.P. 12(b)(6) as
they do when reviewing motions to dismiss a complaint. Clark
Capital Management v. Navigator Investments, LLC, 2014 WL
6977601, at *1 (D.R.I. Dec. 9, 2014) (citing Lexington
Luminance LLC v. Osram Sylvania Inc., 972 F.Supp.2d 88
(D.Mass. 2013)). A dismissal is indicated "if the
complaint does not set forth factual allegations, either
direct or inferential, respecting each material element
necessary to sustain recovery under some actionable legal
theory.&#39;" Lemelson v. U.S. Bank Nat.
Ass&#39;n, 721 F.3d 18, 21 (1st Cir. 2013) (citations
omitted). In determining whether a motion to dismiss should
be granted, the Court considers whether, "construing ...

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